India's Telcos to Benefit From Improving Regulatory And Competitive Framework

India's telecommunications industry is all set to turn an important corner. Improving regulatory risk and moderating competition in India will support the credit profiles of the country's top telecoms according to a report from Standard Poor's Ratings Services.

"We believe India's telecom industry is entering a consolidation phase,
given
significant regulatory changes and a considerable shift in the competitive
environment," said Standard & Poor's credit analyst Abhishek Dangra.
"The top
three players in the industry--Bharti Airtel Ltd., Vodafone India, and Idea
Cellular--are likely to strengthen their market position because smaller,
weaker players are likely to find it increasingly difficult to acquire
expensive spectrum and lack the scale to run profitable nationwide
operations."

According to the report, India's telecom industry is entering a new phase
where the market leaders are likely to drive competition. This is in sharp
contrast to a few years ago when small players and new entrants shaped
competition with price wars. In addition, the intense competition in India's
telecom industry should slowly moderate as a result of consolidation. The data
segment is likely to propel the next wave of growth and competition in the
industry.

Policies announced in 2014 provide long-awaited guidelines for important
issues that had been mired in uncertainty, ambiguity, and the lack of a policy
framework. While Standard & Poor's believes the new policies on spectrum
renewal, mergers and acquisitions, and spectrum trading significantly improve
regulatory risks for Indian telecoms, the risks will still be above-average
compared with those in global markets. This is because some ambiguity in past
policies has resulted in legal disputes between the government and the
telecoms, and greater clarity needs to emerge on the policies rolled out in
2014.

"We believe the new policies are significant and provide a good starting
framework for improving the industry's prospects," said Mr. Dangra.

The report notes that ambiguity about the new guidelines and any reversal of
policy direction from the regulators, a new government, or the judiciary is a
key risk for India's telecom industry, although this appears less likely.
Aggressive and prolonged price wars, including those in the data segment,
along with the entry of new players could also be detrimental to the industry.

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